Hello, and welcome to The Australian's Money Positive podcast. I'm James Kirby, the World editor at The Australian, and welcome aboard everybody.
Well, you may have dealt if you are.
A property investor or want to be a property investor. You probably know that a lot of property investors seems to be a little bit obsessed with land tax and forever complaining about it.
But here's the thing.
It's really changing as to what land tax is and the difference it's going to make if you're a property investor. It all started about two years ago the budget before last in Victoria, where there was a threshold for a long time we didn't pay land tax unless the evaluation was over three hundred thousand.
They cut that fifty li brought.
Just about everybody who ever had an investment property or holiday home or any type of property in Victoria into the tax net and actually hundreds of thousands of people with Prospvictoria getting there first ever tax bill at these weeks, which I'm sure they're delighted to see coming in in the post now. That had an amazing impact in the year and a half since that rule change happened in Victoria. Victoria is the weakest state in terms of price growth in Australia.
It also has the least investment activity.
And I'll just give you an idea about thirty percent only of loans going through the system in Victoria are in for investors. That would be more like forty percent in other states. So what's happened, I believe it or not the New South Wales state, but just coming through this week, they jumped on the exact same pivot that you like and found a way to drive more tax
revenue out of the land tax area. What they did at the men's government in New Southwest, what they've done is they have they've done thing called they freeze the indexing. What that means is that it should be inflation indexed and it should.
Rise all the time time.
It's by the way, it's a million dollars in Sydney as a fift two thousand Victoria. And however, having said that, by freezing it at that level and not indexing it for inflation inflation running at about four percent a year, thousands of investors would be brought into the tax net and roughly one over a billion dollars will be brought in over four years by the Men's government with that small change. So what's happening is bictly there's a nationwide loop by the states on land tax.
Queensland remains sitting there.
The threshold there for lant taxis six hundred thousand. It's been there for ten years or more. We have to think that that would change as well. I've got someone to talk about this this morning. She's on the ground. She's a regular on the show and it's Kitty Parker, who operates as a buyer's advocate in the Sydney market and was very happy about the Sydney market the last time I talked to her, and then she wasn't quite as happy yesterday when you had just got the news
of the land tax. Tell us your reaction and what it means kidding.
Hi there, James, Thanks for having me today, and yes you are correct. When we chatted yesterday, I went our goodness, Here we go. The first thing for your listeners. Obviously, the land tax that's proposed to be implemented in New South Wales is slightly different to Victorious, so obviously the threshold is much higher, so it will be less likely to attract such a huge cohort of investors. There are
those nuanced differences. However, obviously, as soon as the government introduces attacks for property investors, typically what happens is the investment market reshuffles. So will it have an packed on in particular we're talking about Sydney. Obviously it covers New South Wales, but predominantly Sydney. Will it have a reshuffling, Yes,
it will. I believe it will. I understand as far as the data goes, there will be naysayers that suggest it will have less of an impact than one would believe that there's only a small cohort that this land tax will affect. However, what it does is people forget. There's that ripple effect and it will force a number of investors to I believe, restructure their cash flow. And I think it will have implications in other areas that I don't think the government has even touched on as yet.
Okay, and obviously in Victoria there was that there's a straight correlation between the introduction of the taxes and investors moving out of the market and prices software. Now there are other reasons for that, but it's a major reason and cited as a major reason all the time by the industry.
Do you think there's something of a.
Investor's being boxed out around the country where they're if they're looking for the lowest tax regime for investing in property, the gold posts keep moving on them.
That's true. And I think with the Victorian model, by setting the land tax thresholds so low, they literally caught in their net nearly every property investor. The New South Wales land tax proposition sitting at currently just over a mill it's not as dire as the Victorian situation. However, it will absolutely, inexplicably force property investors in New South Wales to consider other options when they fall into that
cohort or not. This will absolutely lead to, I believe, a focus slightly away from Sydney property investment, as you rightly know, to other states that offer a little bit more of a favorable tax position.
Right if you were a rational person, you'd say, perfect opportunity for Queensland Andrew Ghost to say, hey, listen, you know we're the states, we're the tax attractive states.
But do you.
Think that's how they're thinking or do you think they will actually just be next.
I don't think they're necessarily thinking that way just yet. I think it's early days still that over the next twelve to eighteen months, I think inadvertently a number of property investors will look to other states to consider. And obviously Queensland has some very good capital growth stats on the cards, so it would make sense that there will be investors that pivot away from the Sydney market and towards states such as Queensland for the tax breaks.
Right, yeah, so you get that visually, get that tax hunting, which is entirely understandable. Foreign investor, Is there anything in people can do in relation to the land tax if you are an investor, is there anything you can do to minimize it as an investor before you start into property or before you make your next move.
I think this leads into yes. The short answer is yes.
And I think this leads into as I mentioned that ripple effect that I think we will start to see a higher level of interest only mortgages and potentially investors switching from principle and interest to interest only mortgage repayments to free up a bit of cash flow, but also to redistribute our say, their debt, so they red just have higher Usually it's a higher variable interest rate, they will redistribute their debt into other avenues that are a
little bit more cost effective. So I think the ripple effect will actually be quite a change in uh, the distribution of mortgage loans R. That will be one of the potentially you know, a savvy investor is wanting to maximize their returns, minimize their tax and something like this land tax. I think there'll be a lot of smart folk out there that will look into how to circumvent paying this tax via If I have to pay this tax,
where can I redistribute to pay less tax elsewhere? And I think that will be with mortgage loans and the type of loan people utilize. And these are the things that I don't think the government or a lot of folks have considered just yet.
Interest This is an unlikely time to go interest only, isn't it? Because we were told that the rates are at their peak.
This is true, however, without wanting to get into the nitty gritty, obviously, if you are somebody that will fall into the coport of this land tax and having to pay this land tax, you will be speaking with your accountant or financial advisor and probably looking at ways to minimize tax and going interest only, and the situation that you can set yourself up with with that will free up some cash flow and allow you to often offset those interest charges against your personal income tax and even
help you save money on your principal place of residence and your debt towards that. So there are high level ways and means that you can restructure your debt in this situation do help soften the blow of this.
New taxes coming in one door, so you can get some new offsets basically getting more tax deductible debt or at least restructuring existing debt that more obviously is tax deductible. Have I got that more or less in the tail of things? Okay, very interesting? Yeah, it's well, it's definitely beyond doubt now that whether it's coordinated or not doesn't
really matter. But the major states already Victoria and new settlers have basically tightened up and moved to make more money out of land tax, which is already a controversial tax in the eyes of many investors for a variety of reasons. Okay, now what we might do take short break. I want to talk kitty about some a couple of issues that have come up with questions in recent times. One is about whether, for instance, you should ever buy
with friends or mates. But it's coming great really as an issue, and I want to talk to her about that and a few other things in a moment. Hello, Welcome back to The Australian's Money Puzzle podcast.
I'm James Kirby. It's Tuesday. We're talking property.
I'm talking to Kitty Parker, buyer's advocate in Sydney, regular a friend of the show, and she is with us this morning. Tell me, we get a lot of people asking because of prices, because of how difficult it is now, it would seem to make a lot of sense to go in with another the person to buy a property. Have you come upon us have you Have you ever worked as an advocate for what might be effectively a loose partnership.
Yes, I actually have, James, I have probably not as as loose as just some friends that have recently met and they want to get into the property market. So you're going for this that you are absolutely correct with property prices, especially in Sydney where they're sitting at the moment, folks are really trying to think of innovative ways to get into the market. One of those ways is absolutely purchasing with say a trusted co worker or a trusted friend.
I recently helt ironically this is probably the biggest one I've done. Five siblings, five people joined because each of them have had such low borrowing capacity but wanted to get into the Sydney market. And so there were literally five siblings joining forces just to try and get into Sydney.
But I think as housing affordability moves further and further away from the average ossie, especially in Sydney, more and more there will be people joining forces with friends or co workers just to be able to get a footprint in the Sydney market.
Your initial response to that, did you say, oh, no, this is going to be trouble.
Initially, intuitively, of course you think this is going to be trouble. But the handful of times I have undertaken a by so friends, I do see in the background they get a legal besides the obvious purchasing contract and that situation. They go to a solicitor and they get an a legal contract written up between them. So they do usually, or I hope most of them will have a legal contract drafted. Some lot things in with a
bit of a watertight framework. I would certainly suggest that as buying property, especially in Sydney, you know it's a substantial purchase. You'd not want to have a mate one day that you're you know, having a beer with and you decide to buy property with and a few months later that all turned south and you know you're committed to a mortgage or what not at quite a substantial debt with someone that you know you don't feel favorably for.
So I imagine the well, I imagine it's straightforward enough to buy and you divide up the equity and who owns what. But it's the other end when you've got to if someone wants to sell, if someone doesn't want to sell. Do you know, can you remember with the people you worked with other five siblings, did they have any sort of exit clothes?
They didn't. To be fair, and I can even say, even over the last number of years, the number of times not my clients, but when we're purchasing a property, the actual vendors I see more often than I would like to see vendors who are either siblings or family members or whatnot, squabbling over coming to an agreement to sell and so I think it really does disadvantage at that sales end if all parties aren't on the same page.
But it's also while holding the property because obviously there's costs to maintain a property, and if you're not on the same page with your your fellow owner, even things like financially, if one folk you know, comes across hard times with work and they may not be able to pay you know, certain council rates or even things like that, and then if that debt falls on one other party because it has to be paid, that can cause friction of course.
Yeah, and what about when you're talking about when people are selling and there's I imagined typically this might happen with an inherited property and the brother and sister get the property.
What happens is it that are there?
They are they invariable scrubbing over the acceptable What is an acceptable amount to sell out is that.
Usually it's price. Sometimes even the process, it can really come down to one party saying I absolutely want to take this property to auction, other party saying, gee, we've just received a fantastic pre option offer. We would really like to pull the trigger and just say yes. Obviously, if you're a buyer. You're not going to wait around for days or a week for these two owners to squabble it out and come through a resolution. So time is very much of the essence when both buying and
selling property. And I can say I've picked up some very good bargains for clients because the seller has been squabbling. The parties have been squabbling, right, and so it's almost like work to their disadvantage. Polite lead utilize that psychologically to bargain.
Right because they're not in an optimum negotiating position. Yeah right, Okay, tell me about the five siblings. Did they buy something they did? Yes, they did. Is it an investment property or are they living there?
One I've done it twice now. One it was an investment property and the other was actually planning on being an investment property that ended up being the principal place of residence for one of their family members. But I think you have to have such a close and very open relationship within that family to be able to adequately undertake that task and maintain ownership over typically the medium to long term that you would hold a property. It's
not a one or two year framework. You're looking at holding that property for I would say at least five, seven, ten years. Want to hope that everyone gets along in that lifestyle changes with those family members don't inadvertently cause a wedge in the process.
It would be very interesting. Obviously, it's the thing that comes up. I imagine in principle, it's a good idea with some people. As you say, you need trust, you need a constant communication. And I think you need a plan and not just to buy, but you need a plan to manage it, as you say, as years go by, and you probably need an exit plan too. I remember dealing with very what the biggest joint venture that had ever been done at the time between a bank and
an IT company. I was one of the the head of the one of the top four banks and one of the major IT companies in the world. And I was with this banker and I remember he said, and I'll never forget. I was asking all these questions about the droint venture, and he said, listen, the most important thing in the droint venture is knowing how to get out.
I kept that in mind forever. You know, and the supplies, whether the three mates buying a.
House or a bank is doing a ten year il sourcing deal for a billion dollars. Will take sure break. We'll be back in a moment with some questions. Hello, Welcome back to The Australian's Money Puzzle podcast and James Kirby.
We're talking all things property and investments and interesting, very interesting in the first part of the show there in terms of the news, very newsy weekend property because it's becoming apparent this week and I think this year that the way it goes with the national economy national economics is that the states, many of them, particularly Victoria, are in debt, higher levels of death than they planned for many years. They have to find new sources of revenue.
One of the few sources of revenue they can get ass is their own property market. That's why we have stamp duty and that's why it's very hard to shift any of these things. And land tax, and of course we're now seeing two state governments, the two big ones, Victoria and New Southwayes making moves on land tax. It's going to become a real issue this year for an investor.
You need to be across what's happening in your state on land tax and the differences in the different states in land tax because they are now enormous, enormous range of tax, both the tax and the nest if you like, which is particularly deep in Victoria. Basically, if you want anything, you want to play land tax in Sydney, well you want anything over a Midian. I think it's one point seventy five to be precise. I only know this because I was writing about it during the week. Okay, now
some questions and comments. I believe you mentioned in Victoria property prices have not grown as strongly as they have in other states, and you also suggest that this is due to a new land tax regime. And I agree this may be the cause, but it's also valid to say it's a positive for young families who are trying to buy their first home. It seems to me that one of the intentional outcomes of this new taxes to discourage investors from bidding property prices ever higher. Therefore, this
land tax may be helping to improve housing affordability in Victoria. Yeah, it will. If the job was the suppressed prices. It's done that. That's the slowest growing state in the land. And if you're a first to m buar then you'd be happy with that. Yes, take that point on board, Billy, I think that's about all we could say on that one.
Is anything you want to add to that, kiddie.
I would probably say that it's a misnomer that people believe investors drive up property prices. In my experience, those that are the most likely to drive up property prices are owner occupiers, as they have a stronger emotional investment in propertys actually tend to be quite level headed and very price conscious. So I understand why the lay person may feel that investors negatively impact the market with regard
to pricing. I would say, in my experience its owner occupiers that drive the prices far more substantially than investors.
Have you any data back? I wonder have you?
Has anyone ever done a doctorate on that one in the business schools?
Maybe they should, absolutely, I wish I had data on hand, but I would say it's just my own undertakings and what I experience on the ground every single.
All the time. Yeah.
Yeah.
Actually, at one interesting point would be the post COVID price surge. That was a time where we had border closures and we had very low investor activity, and those prices went through the rows, and that was very much led by first home buyers and own occupiers. Very very little investor.
Activity home space as such. Okay, yeah, not very interesting, all right, And if anyone has anything to act to that, let us know, all right, Melanie says, our foreign investors pushing up prices in the market or not. I read about this all the time. What are the numbers? Okay, man, the numbers are strange. The numbers, I will say, they're all over the place. The headline number is that foreign investors are not particularly important in the market. That is,
they represent only one or two percent of prices. You wonder sometimes what people really mean when they say foreign investors strictly as to that someone sitting off shore and buying a house here. Domestically, it's quite a small number. However, you got some really strange variations in the first three months this year. According to National Australia Bank, in one market Victoria, the number of new homes in the city
of Melbourne in the suburbs, new newly built homes. There was more foreign buyers of those homes than there were investors domestic investors.
That's extraordinary. But there's two things going on there, right.
You have the exceptional immigration attraction of Victoria and you have the exceptional turnoff on Victoria for the domestic investor who's got the highest taxes. So those two things explain that. So a shifting situation there, Melanie, But very broadly on a highline level nationally in terms of big volumes, that's not they are not particularly important. But then there are quite curious variations to that, and one of them was
in Victoria this year. Have you acted for foreign investor kid in buying in Sydney or do you come up against advocates that.
Have it as part of their business.
Good question, James. I do manage a lot of foreign investor purchases, but proportionally within my business it's a very low number. I'm for there are some other buyers advocates where that is their bread and butter, like that is particularly their cohort. But I agree with you, and it's with regard to the data, it very much depends where you look. As you mentioned, there's a bit of a
spread of data. The numbers jump around. The one thing that is very very common between any data that you look at with regard to this is the numbers are reasonably low overall. It's definitely not a case and again it's I understand there's a sentiment in this country that the foreign investors are coming along and they're buying out all the property and that this is why there's no property here for Aussie's or this is why crisis are
going up, and it really is not the case. There's lots of hurdles and regulations that foreign investors must jump through, as well as the additional costs with regard to stamp duty, et cetera. There are a lot of hurdles foreign investors must jump through to purchase property here. So it's not as widespread and volumeous as I think Melanie may feel.
It is terrific and thank you for that answer. Very good. Okay.
Final question is not hard property invesment, but it doesn't volve your home and it's from Clint and Clint asks a quick question relating to claims on vehicle expenses when working between your home property and elsewhere. Many people now working from home. I'm wondering if it's the case to
attribute all the kilamaters driveern between home and work. In a situation where someone works a few hours in the morning, drives to the office and were transforme to work for a few more hours, Clint, you are absolutely on the money on the zeitguidest there. Okay, everyone's working from home now, we know that. I certainly know that. This morning in
our office downstairs. It's one of those days where you say, gosh, you know, the working from home thing is still alive and kicking, and you say, well, if you know, if I'm really working from home, I just went in for an hour, then surely then surely it's an expense for me, the person who works from home that I drove in and out to the office. And you would like to think that that's how it works. And as always, our friends at the ATO make sure they make sure that
that's not how it works. Sorry to say, I've asked James Gerard fent the show who you know. I'm sure Kitty and I think Kitty was introduced to the show through James Gerrard and he in turn went to an accountant, Tim Ricardo.
So horror research here, folks.
And here's the thing. I could read the whole thing off you. But basically, if there's an office in the city then you can claim it. So if you work for BHP and BHP of an office in Melbourne, then you can't claim it because you could have gone into
you you could work in their office in there. So I think the only chance in terms of claiming network from home is where the employer does not provide any position or facidity for you to work in the city, and of course they don't have to do much to do that these days, or they have to do is provide a disk somewhere. So I'm afraid, just to clarify, you can claim a tax deduction for the cost of
transport on trips to perform your work duties. We tend to work related conferences are to go between two or more separate places of employment, such as if you have more than one job. But guess what, ninety nine times out of one hundred, you can't because they always say no and you have to be very very clever to find a place. And I think it's about time they review that because really the world has changed, but the ATO isn't going to do it anytime soon.
That's about it. I'm afraid for today. Sorry to end on such an unfortunate note.
You can't claim you're you can't claim dropping into the opfice when you work from home. It's a travel expense. You can watch out for land tax. You should know what's going on that. The goalposts are changing, they really are, and they're making inter state competition quite interesting. As Kitty was saying earlier, just ow queens and is sitting there doing pretty well anyway. And if they were of that disposition, they could make themselves the attractive tax state for property investors.
We don't know if they'll do that.
They've got an election, so they're not going to do anything anytime soon, but we'll see.
Hey, thank you very much for today, Kitty.
You're welcome. Thanks for having me.
James your moving house which is always hell.
It's a messy. I know this sounds not great. There's a little bit of.
You did very well. Do you even concentrate?
Are you moving out today or moving in today?
Where are you or the best of luck with it all.
I'm sure I'm sure lower workout and be a greatly a prosperous move. I'm sure the fullness of time, best of look with this. Thank you so much, thanks Kitty, and talk to you soon. Okay, folks, let's have some more questions. Keep those questions rolling. Do you know the email the money puzzle at the Australian dot com dot au Coko soon